Finance Minister Yair Lapid
Photo: Reuters
Lapid to raise corporate tax to 27%
In exchange for Treasury's consent to increase company tax by further 0.5%, rise in income tax to be applied from second tax bracket
The Finance Ministry is planning to raise the corporate tax to 27% in exchange for a relief in income tax for the first tax bracket.
During last week's marathonic budget discussions in the government last week, the Finance Ministry agreed to cancel its plan to impose value added tax on tourism services
in return for increasing the corporate tax by 0.5% to 26.5%.
According to the budget proposal approved by the government last week, a 1.5% increase in income tax will be applied on all tax brackets starting in January 2014. The Treasury is now expected to agree to raise the corporate tax by a further 0.5% in exchange for applying the income tax hike from the second tax bracket for those earning more than NIS 5,280 ($1,445) a month.
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Imposing VAT on tourism services would have generated some NIS 700 million ($192 million) in 2014, and had it been applied as of June 1 alongside the general VAT increased planned, it would have brought another NIS 400 million ($110 million) into the state coffers.
The corporate tax, which is a direct tax, can only be raised in the beginning of the year. According to Treasury estimates, the income from increasing the corporate tax by 0.5% will only total some NIS 320 million ($88 million). Yes the Treasury agreed to swap between the two types of tax due to the fact that the tax increment of NIS 14 billion ($3.8 billion) which it specified for 2013-2014 is about NIS 2 billion ($550 million) higher than the real needs of the state budget in order to cover the deficit.
The planned changes in the taxes will be introduced in the upcoming discussions of the 2013-2014 state budget in the Knesset's Finance Committee. The Committee is likely to accept the Treasury's proposal to increase the corporate tax by a further 0.5% in order to ease the tax burden on Israel's low-income population.
